Today (Wednesday), the Director General of the Israel Antitrust Authority approved the merger between Shufersal Ltd and New Pharm Drugstores Ltd.

After an in-depth investigation of the merger, the Director General decided to approve the merger subject to conditions requiring the sale of nine New-Pharm drugstores to a single buyer, who is not affiliated with the parties and who will commit to operating the stores as drugstores, as well as the sale of one Shufersal supermarket to another such buyer who will commit to operating it as a supermarket or drugstore. The stores will be sold prior to executing the merger and transferring control of New-Pharm to Shufersal. In a ground-breaking move, the merger approval conditions require that the sale be completed before the merger is executed ("fix it first") and that the sale be to a single buyer.

The merger investigation indicated that there is overlap between the activities of the parties and the products they sell, such as toiletries, personal hygiene products, cleaning products, baby products, etc. Regarding the overlapping products, the IAA found that the merger may raise competitive concerns in areas without supermarkets or drugstores sufficiently close to the parties' stores and sufficiently similar to the parties' stores in terms of the scope and variety of products sold. In these areas, the merger was liable to lead to a paucity of competitors, thus giving Shufersal unilateral market power. This unilateral market power would mean that Shufersal would be able to raise the prices of the overlapping products in the parties' stores, and specifically in New-Pharm stores. In the regions where the IAA found that the merger was liable to allow Shufersal to raise prices to consumers, the Director General ordered the parties to sell New-Pharm or Shufersal stores, as described above.

Another concern examined as part of the merger review was the concern that Shufersal, following the merger with New-Pharm, would have unilateral market power towards suppliers that currently supply products both to Shufersal and to New-Pharm. This concern was dismissed after an in-depth examination, which included conversations with many suppliers as well as gathering data relating to this issue. Shufersal and New-Pharm's suppliers did not express concerns about doing business with the merged body; on the contrary, several suppliers expressed support for the merger.

As mentioned, the merger approval was made subject to conditions requiring the sale of ten stores to another party, who would operate them as stores that will compete with the parties in those geographic regions found to raise competitive concerns. In a ground-breaking move, the conditions require that the sale of the stores be completed before the New-Pharm stores are transferred to Shufersal ("fix it first").

Nine New-Pharm stores (the store in the Shaul HaMelech Mall in Be'er Sheva; the store in the Orot Mall; the store in the Azrieli Mall in Or Yehuda; the store in Yizraelia, Haifa; the store in Modi'in Center; the store in Kiryat Motzkin; the store in the Central Bus Station in Rishon L'Tziyon; the store in Sha'ar HaIr in Rishon L'Tziyon; and the store in the Azrieli Mall in Ramla) will all be sold to a single buyer, who will operate them as drugstores. The Shufersal Deal store in the Haifa Mall will also be sold to a buyer who will commit to operating it as a competing business.

The Director General believes that subject to these conditions, the merger will not harm competition; on the contrary, the merger is anticipated to greatly contribute to competition in the drugstore sector.

Currently, there is one dominant player operating in this sector – the Super-Pharm chain – and the other market players' are limited in their ability to compete against it. Shufersal's entry into this sector should allow it to utilize its capabilities and systems to improve New-Pharm's ability to compete against Super-Pharm efficiently and effectively. Moreover, the merger condition requiring the sale of nine stores to a single purchaser to be operated as drugstores, in effect, means creating a base for setting up a third national drugstore chain, which will be able to compete both with the parties and with Super-Pharm.

The IAA's examination took around four months and included collecting data from and hearing the positions of around 40 different parties, including suppliers, competitors, lessors and the parties themselves.